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Old 18.04.2011, 15:46
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Investing in Non-USD denominated equities

Hello,

This is a general tax withholding question for anyone that may offer advice.
I currently hold most investments in ETF's on US exchanges. There is a lot of liquidity, no withholding tax, and hours of trading that make after-work adjustments to my portfolio easy. The problem is, the money waiting to be invested, and all income gernerated is in USD - the worlds funding currency.
I am a believer that the USD will not remain the sole major funding currency and thus I am not comfortable with holding investments only denominated in USD and paying USD dividends and interest (I realize that these funds hold international equity, which is the purpose of the vehicles, but the USD is still the business currency). The problem is that when I meddle with different exchanges I get hit with large witholding taxes (20% in London, and 28% in Frankfurt I think).
So my question: Where do you hold non-USD denominated equities to avoid this withholding tax? I hold my portfolio at an account in the new EU which allows most european exchanges, US and Canada. No non-North American or European currencies.
Looking forward to replies.
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Old 18.04.2011, 16:59
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Re: Investing in Non-USD denominated equities

I buy Chinese, European, UK equities as ADR's, traded in the US, it's the cheapest way IMHO. There is some withholding tax however as I invest for capital growth rather than income my yield is under 0.7%, so the 15% withholding tax that I can offset is hardly an issue.

USD seems quite a bargain to me based on buying power.


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Hello,

This is a general tax withholding question for anyone that may offer advice.
I currently hold most investments in ETF's on US exchanges. There is a lot of liquidity, no withholding tax, and hours of trading that make after-work adjustments to my portfolio easy. The problem is, the money waiting to be invested, and all income gernerated is in USD - the worlds funding currency.
I am a believer that the USD will not remain the sole major funding currency and thus I am not comfortable with holding investments only denominated in USD and paying USD dividends and interest (I realize that these funds hold international equity, which is the purpose of the vehicles, but the USD is still the business currency). The problem is that when I meddle with different exchanges I get hit with large witholding taxes (20% in London, and 28% in Frankfurt I think).
So my question: Where do you hold non-USD denominated equities to avoid this withholding tax? I hold my portfolio at an account in the new EU which allows most european exchanges, US and Canada. No non-North American or European currencies.
Looking forward to replies.
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Old 18.04.2011, 20:41
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Re: Investing in Non-USD denominated equities

from what little I know, there really is no better solution. That's precisely one of the reasons for the popularity of those ETF's.
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Old 19.04.2011, 10:42
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Re: Investing in Non-USD denominated equities

So we are all doomed to hold USD denominated invesments even though we know the risk associated with having all of our wealth in one funding currency? I wonder if there are any scholars out there who are writing a PHD thesis on this subject. I would love to see a scenario based analysis on what happens when we move to a 3-4 currency funding world from the current single funding currency. Its really the only thing about investing that makes me nervous. Its a new variable that we never used in calculating risk.
I am also shocked that in Switzerland, where there are all these hedge funds etc, nobody has proposed a solution. What do you do for your clients? All USD?
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Old 20.04.2011, 00:51
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Re: Investing in Non-USD denominated equities

Nobody said you are doomed to hold all your investments in USD. Nothing stops you from investing directly in London or Singapore - but of course you'll pay much higher transaction costs.

The US is the largest and the most liquid market, offering the widest range of products. You have the choice - cheap and easy, but comes with currency risk. or the more expensive (and tedious) way, but you get rid of the currency risk.
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Old 09.05.2011, 08:01
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Re: Investing in Non-USD denominated equities

Why not considering Canada? You can open a brokerage account there directly and deposit and withdraw funds using SWIFT transfers. I have been a very happy investor in dividend yielding stocks like resource-extraction companies and Canadian banks. You can also get exposure to entire sectors by buying C$-denominated ETFs traded on the Toronto Stock Exchange (TSX).

I am currently in Canada and planning my move to Switzerland. Since I'm still a resident of Canada I do not pay withholding taxes on dividends. The whole business of taxes for non-residents is explained here: http://www.cra-arc.gc.ca/tx/nnrsdnts.../nnrs-eng.html.

I have my account with Questrade (http://www.questrade.com/). The transaction costs are dirt cheap (4.95 - 9.99 C$ per trade), but you need to be a bit self-reliant as the service is sometimes a bit slow.

Have a look at the CAD-denominated ETFs from Claymore (http://www.claymoreinvestments.ca/) & iShares (http://ca.ishares.com/home.htm). The TSX is from my perspective a Mecca for fat high-yield dividend stocks; you may also want check out some individual Canadian oil and gas companies. Also Canadian REITs offer nice returns.

That said, in relation to the US$ the C$ seems to be very correlated with commodity prices. Since I am still earning and spending C$ here this property does not affect me that much, but it would be imperative to look how the C$ performed historically against the CHF. If you plan to invest there.

Another issue to keep in mind is liquidity. Although most of the large mining companies, banks and industrials are very liquid on the TSX, some C$-denominated ETFs are not. Be sure to check bid-ask spreads, daily volumes etc. before going for such ETFs. Naive investors are less likely to make that mistake in US-exchanges, as most ETFs are very liquid there; but in Canada you need to do your homework first.

I have been told that Australia offers similar investment properties to Canada. This may also be an avenue to check out.
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Old 13.07.2011, 11:44
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Re: Investing in Non-USD denominated equities

Thank you for the reply.

I do not doubt Canada as an investment opportunity and hold roughly 3% of my portfolio in Canadian equities.
The issue is the currency. I do not think Canada is diversified enough from the USD in order to move from USD to CAD. I was hoping for a EUR option where I could invest in EUR denominated exchanges and avoid the higher tax witholding in these markets. Is there a market that does not withhold tax - like the US.
My home country taxes at 15% so anything over is basically a loss. And the reason I am concerned about home country is I consider CH a temporary situation.

Pops
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